Moody's echoes alert over NH budget gap

A second bond-rating agency last week alerted investors that state leaders must fix a budget gap or the state risks paying more to borrow money.

The bond-rating agency Moody's Investors Service on Friday issued a "credit negative'' for New Hampshire, following on the heels of unwelcome news that Standard & Poor's lowered the state's outlook from "stable'' to "negative."

Bill Dwyer, commissioner of the state Treasury, said Saturday that the move by Moody's shouldn't immediately affect the state's borrowing costs.

"It is important to recognize that the commentary published by Moody's is not an actual change in the credit outlook or credit rating of the state, rather an alert to investors," Dwyer said in an email.

"Since the Moody's report has no actual effect on the credit rating or outlook of the state, it is not likely to have a material impact on the cost of capital at the time of the next GO (general obligation) bond issue later in the year," Dwyer said.

The general obligation bonds "are typically used to fund non-Turnpike capital projects and improvements approved by the Legislature in each biennial budget, running the gamut from renovations at Hampton Beach to construction of the new women's prison in Concord," Dwyer said

On Tuesday, Dwyer said the S&P move potentially could mean higher borrowing costs when the state issues general obligation bonds next in December.

Both Wall Street bond rating agencies were responding largely to a recent Hillsborough County Superior Court-North decision that the state's Medicaid Enhancement Tax, which is levied on hospitals' patient care revenues, was unconstitutional. The state is appealing the decision.

Moody's said the change was "indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer," namely the MET ruling.

Moody's maintains its rating of the state's general obligation bonds at Aa1, while S&P rates them at AA, each one level below the highest possible rating category, Dwyer said.

"In the absence of adequate and timely measures to address this situation, it is possible that Moody's could revise its outlook on the state's credit to 'negative,' or it could elect to change the credit rating itself," Dwyer said. "A change in outlook generally, but not always, precedes a change in rating. The ratings assigned to the state reflect an assessment of many factors, all of which could affect the state's ratings in the future."

While some lawmakers said they believed they did not have to act to address the issues raised by the court and could wait until the next Legislature was seated, the bond rating agencies said otherwise.

With only six weeks to go in the legislative session, finding a solution is not going to be easy, as lawmakers essentially have two options. One would be a short-term fix to address the court ruling and allow the state to continue to collect the MET in October, when it is scheduled to collect nearly $50 million due from state hospitals for fiscal 2015. The other would entail a more comprehensive effort.

In announcing its outlook warning, S&P also raised two other problems: the state's anemic savings account, or Rainy Day Fund, and its retirement system, which has less than 60 percent of the money it needs to meet future obligations.

Those seeking a short-term fix say the problems with the retirement and Rainy Day funds have been there for years and S&P never lowered New Hampshire's outlook until the court decision, so the focus should clearly be on what to do with the MET.

Those in favor of a more comprehensive solution want to address the MET as well as pension obligations and the Rainy Day Fund.

"S&P is very clear that our inadequate Rainy Day Fund and underfunded pension system leave the state in a 'thin financial position' that hinders our ability to respond to and withstand unexpected financial occurrences," Morse said in a statement. "The S&P analysis provides a clear road map as to how we can improve our state's economic position and better prepare for unanticipated fiscal events."

Yesterday, William Hinkle, spokesman from Gov. Maggie Hassan, said state leaders need to resolve the issue.

"Moody's comments about the Medicaid Enhancement Tax reinforce the need for hospitals, providers, legislators and state officials to quickly work together to address the budget and health care challenges posed by the MET ruling, which was a direct result of short-sighted action taken in the FY 12/13 budget. The governor has been actively working with all relevant stakeholders to resolve these challenges as quickly as possible in a way that is fair to all parties, protects the state's budget and ensures the health and well-being of Granite Staters."

While the comprehensive solution before the end of the session would be ideal, it's hard to believe an agreement involving the governor, Senate, House, hospitals and private health care providers would be reached in such a short time.

They have been negotiating over the same issues raised by the court decision since 2011, when budget writers decided to keep $125 million of the tax that used to go back to the hospitals and turned "the phantom tax into a real tax," as Alex Walker of Catholic Medical Center said after the court's decision.

Talks continue between all sides as hospital representatives have been around the State House nearly every day since the MET decision came down two weeks ago.

But the MET is not the only card in play. There are Medicaid expansion and state and federal programs to address uncompensated care; that is, the care hospitals provide for which they either don't get paid or get only partial payment through the Medicaid program.

No one expects a definitive plan within the next couple of weeks, and there has been talk in the State House hallways about a special session to deal with the issue before hospitals' first quarterly payment in October.

A little light may be shed on where lawmakers are heading Tuesday when the Senate Ways and Means Committee has a hearing on House Bill 1613, the bill committee Chairman Bob Odell, R-New London, said is being held to deal with the court ruling.